Long-Term Care Most Difficult Risk to Manage

A survey of retirement-focused financial advisers finds
long-term care easily ranks as the “most difficult” risk clients face. It’s
also one of the least-common areas for offering products and solutions.

The survey was conducted by Hanover Research on behalf of
Lincoln Financial Group and shows that protecting wealth from potential long-term
care expenses is one of the most difficult risks for advisers to manage in a
client’s retirement outlook. According to Lincoln, the survey, which polled both consumers
and financial advisers, also shows less than 40% of consumers have ever discussed
long-term care planning with their advisers.

Even more telling are stats showing fewer than one in 10
advisers have crafted and implemented a formal long-term care solution for their
clients—and 73% of clients polled “significantly underestimated” the costs
associated with long-term care, which can easily range up to $100,000 per year.

Andrew Bucklee, head of insurance solutions distribution for
Lincoln Financial Distributors, says the body of research Lincoln has produced
in recent years “shows the clear need for more education in the marketplace
around long-term care planning,” not just for clients but for advisers as well.

“At Lincoln, we really view this as an education issue and an
opportunity for advisers and clients to work together on a difficult problem,”
Bucklee tells PLANADVISER. “Advisers face an uphill battle when it comes to
understanding wealth protection planning in terms of long-term care.”

This is because, like the typical defined contribution (DC)
plan consumer, financial advisers in general have been “raised around accumulation,”
Bucklee says. “There is less experience in draw-down planning, and most advisers
have built their businesses to grow portfolios, not spend them down.”

Today, however, large portions of the advisory client base
are approaching and moving into retirement, “so there is a need to learn how to
use annuity products and how to efficiently take money out of a tax-qualified
retirement plan and tie that into pensions and Social Security,” he explains. “This
is something advisers didn’t do very much in past decades because more of the guaranteed
income stream was coming from Social Security and the pension that was likelier
to be there.”

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Bucklee says part of what makes planning for long-term care
difficult is how expensive it can be to hedge the risk through traditional approaches. Even the healthiest retirees are likely to need expensive
short- or long-term medical care at some point, he adds, and beyond this, “we have
a dynamic where people live longer and become disabled longer and can’t work
longer than ever before, so it challenges the status quo. We have to start to
create confidence and comfort among clients about securing their own longevity
plan.”

He adds that Lincoln is far from the only provider looking
to help advisers in this space, but he feels the firm has excelled in terms of
providing helpful technology tools and educational pieces for both clients and advisers
to familiarize themselves with long-term care planning issues.

“At Lincoln we have prepared some really helpful technology
tools and white papers that will help the adviser sit down with their client
and walk through all the concurrent variables,” Bucklee says. “That’s what it
takes to build a successful plan. The other important point—it is never too
early to start planning and investing for this.”

Bucklee says that while everyone should probably take some
time to consider it, “not everyone should run out and buy long-term care
insurance tomorrow.” Some will find it is not economically feasible, for one
thing, while others may be able to rely more on government programs or other
sources of support.

“Unless you’ve experienced a long-term care event for
yourself or a loved one, you may not realize the impact it can have on your
financial security—it can easily be one of the biggest challenges any of us
will face in our retirement,” he concludes.

According to Lincoln’s polling, the average cost of a
private room in a nursing home can be up to $97,611 a year under current
pricing trends. For those who prefer to receive care at home, the national
average hourly rate for a home health aide is $21.77, “which can quickly add up
to $3,500 per month, or $42,000 a year, for an aide who provides care for only
eight hours per day, five days a week. And the costs are significantly greater
for skilled home health care: the national average fee for a registered nurse
is $79.27 per hour, which may cost nearly $13,000 on a monthly basis, again for
only a 40-hour work week.”